## Facts

- David Valle purchased a tractor (and related equipment) and financed part of the purchase price through the seller.
- Valle agreed to make four installment payments, and the seller retained a security interest in the tractor.
- The seller assigned the installment contract and security interest to International Harvester Credit Corporation (International).
- International perfected its security interest by ensuring the lien was shown on the tractor’s certificate of title, as Washington law requires for motor vehicles.
- A truck owned by Santiago Valdez, driven by Valdez’s employee, was involved in an accident that destroyed the tractor.
- Valdez’s insurer reached a full settlement with Valle for the property damage (about $14,000) and paid Valle.
- Valdez and the insurer did not have actual knowledge of International’s security interest and did not check the certificate of title for liens.
- After Valle missed an installment payment, International learned of the accident and the settlement during its collection efforts.
- International sued Valdez, alleging damage to (impairment of) International’s security interest in the tractor.
- The trial court granted summary judgment for Valdez, reasoning that Valdez had no duty to protect International’s interest and that the settlement with Valle barred International’s claim.

## Issues

1. Whether a perfected security interest noted on a motor-vehicle certificate of title allows the secured creditor to sue a third-party tortfeasor for destruction of the collateral after the tortfeasor has fully settled the property-damage claim with the debtor/registered owner.
2. Whether perfection on the certificate of title gives the tortfeasor constructive notice that creates a duty to search title records, notify the lienholder, or include the lienholder in the settlement.

## Decision

- The Washington Court of Appeals (Division Three) affirmed summary judgment for Valdez.
- The court held that the holder of a security interest is barred from suing the tortfeasor for destruction of the collateral when the tortfeasor has already made a full settlement with the debtor-owner.
- The court rejected International’s argument that the title notation imposed a duty on Valdez or the insurer to discover International’s lien and protect it in the settlement.

## Legal Principles

- Perfection of a security interest is aimed at establishing priority and notice to purchasers and creditors; tortfeasors are not among the parties against whom perfection provides protection.
- A tort claim for damage to or destruction of the collateral is treated as a single property-damage claim associated with the owner’s interest; once the tortfeasor settles that claim in full with the debtor-owner, the secured party cannot obtain a second recovery from the tortfeasor for the same loss.
- A lien noted on a certificate of title does not, by itself, create an affirmative obligation for a tortfeasor or insurer (without actual knowledge) to search title records, notify the secured party, or include the secured party as a payee in a settlement with the registered owner.
- The secured creditor’s primary remedies remain against the debtor and any proceeds the debtor receives that qualify as collateral or proceeds under the security agreement and Article 9.

## Conclusion

International’s security interest was properly perfected on the tractor’s certificate of title, but that perfection did not impose duties on Valdez or his insurer as tortfeasors, and Valdez’s full settlement with Valle exhausted the property-damage claim for the destroyed tractor; accordingly, the court affirmed summary judgment barring International’s later suit against Valdez for impairment of its security interest.


International Harvester Credit Corp. v. Valdez, 42 Wash. App. 189, 42 U.C.C. Rep. 337 (1985)